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LEGISLATIVE BUDGET BO

SUBMITTED TO THE 86TH TEXAS LEGISLATURE

PREPARED BY LEGISLATIVE BUDGET BOARD STAFF

WWW.LBB.STATE.TX.US MARCH 2019

Legislative Primer

Financing Public Higher Education in Texas

ARDLEGISLATIVE BUDGET BOARD

Financing Public Higher Education in Texas

Legislative Primer

SUBMITTED TO THE 86TH TEXAS LEGISLATUREPREPARED BY LEGISLATIVE BUDGET BOARD STAFF

WWW.LBB.STATE.TX.US MARCH 2019

http:WWW.LBB.STATE.TX.US

CONTENTS

INTRODUCTION .............................................................................................................................1

LEGISLATIVE APPROPRIATIONS ...................................................................................................................1

SIGNIFICANT ACTIONS OF THE EIGHTY-FIFTH LEGISLATURE, REGULAR SESSION, 2017 .............2

APPROPRIATIONS AND EXPENDITURES .......................................................................................5

APPROPRIATED FUNDS ..................................................................................................................................5

DIRECT AND INDIRECT APPROPRIATED FUNDS ........................................................................................6

NONAPPROPRIATED FUNDS ........................................................................................................................6

EXPENDITURES.................................................................................................................................................6

FUNDING GENERAL ACADEMIC INSTITUTIONS ............................................................................9

FORMULA FUNDING......................................................................................................................................9

NON-FORMULA FUNDING........................................................................................................................ 12

FUNDING HEALTH RELATED INSTITUTIONS ................................................................................15

FORMULA FUNDING................................................................................................................................... 17

NON-FORMULA FUNDING........................................................................................................................ 20

BAYLOR COLLEGE OF MEDICINE ............................................................................................................. 22

FUNDING TWO-YEAR PUBLIC INSTITUTIONS ..............................................................................23

PUBLIC COMMUNITY COLLEGES ............................................................................................................. 23

TEXAS STATE TECHNICAL COLLEGES AND LAMAR STATE COLLEGES ............................................. 26

TUITION REVENUE BOND DEBT SERVICE ....................................................................................27

OTHER CAPITAL FUNDING ........................................................................................................................ 27

CONSTITUTIONAL AND STATUTORY FUNDS ..............................................................................29

CONSTITUTIONAL FUNDS ......................................................................................................................... 29

RESEARCH FUNDS AND OTHER FUNDS .................................................................................................. 30

HIGHER EDUCATION BENEFITS ...................................................................................................35

HIGHER EDUCATION EMPLOYEES GROUP INSURANCE ..................................................................... 35

SOCIAL SECURITY BENEFITS...................................................................................................................... 36

RETIREMENT CONTRIBUTIONS .................................................................................................................. 36

STAFF GROUP INSURANCE ....................................................................................................................... 37

WORKERS’ COMPENSATION INSURANCE ............................................................................................ 37

UNEMPLOYMENT COMPENSATION INSURANCE ................................................................................. 37

LEGISLATIVE BUDGET BOARD STAFF – ID: 4909 LEGISLATIVE PRIMER REPORT – MARCH 2019 i

CONTENTS

FUNDING TEXAS A&M SYSTEM AGENCIES .................................................................................39

TEXAS HIGHER EDUCATION COORDINATING BOARD ...............................................................43

FINANCIAL AID PROGRAMS ..................................................................................................................... 43

RESEARCH PROGRAMS.............................................................................................................................. 45

HEALTH PROGRAMS ................................................................................................................................... 45

OTHER PROGRAM AREAS.......................................................................................................................... 46

FEDERAL GRANT PROGRAMS................................................................................................................... 46

TOBACCO FUNDS ....................................................................................................................................... 46

ADMINISTRATIVE FUNCTIONS .................................................................................................................. 47

APPENDIX A – FREQUENTLY ASKED QUESTIONS ......................................................................49

APPENDIX B – TUITION AND FEE PROVISIONS ..........................................................................51

APPENDIX C – GLOSSARY ...........................................................................................................55

APPENDIX D – CONSTITUTIONAL AND RESEARCH FUNDS, 2018–19 BIENNIUM ......................57

LEGISLATIVE PRIMER REPORT – MARCH 2019 LEGISLATIVE BUDGET BOARD STAFF – ID: 4909 ii

INTRODUCTION

Texas’ system of public higher education encompasses 37 general academic institutions; three lower-division institutions; 50 community and junior college districts; one technical college system; and 12 health related institutions, which include two new medical schools that began accepting students in fall 2016. Higher education also includes seven Texas A&M University (TAMU) System agencies that provide research and other statewide support; two constitutionally authorized funds to support new construction and maintenance programs; several statutorily authorized research funds; and assistance to public institutions of higher education to offset the waived tuition and fee revenue from the Hazlewood Legacy Program.

The state’s public higher education system is governed by the nine-member Texas Higher Education Coordinating Board (THECB), whose mission is to ensure an eff ective and efficient system of higher education. THECB’s responsibilities include assessing Texas’ system of higher education and recommending improvements to the Governor, the Legislature, and institutions. THECB reviews and recommends changes in formulas regarding the allocation of state funds to public institutions to limit duplication of academic programs and unnecessary construction projects. THECB also promotes access to high-quality programs at different institutional levels and oversees the state’s student financial aid programs.

Based on 2017 certified enrollment figures reported byTHECB, about 1.4 million students are enrolled in public institutions of higher education in Texas. General academic institutions, health related institutions, state colleges, and community colleges reported increased enrollment; however, technical schools reported decreased enrollment. The result was a slight net increase (9,386 students) in enrollment from 2016.

Public higher education institutions and agencies allocate state appropriations through a variety of methods, and the manner in which appropriations may be expended vary. References to appropriated funds in the following sections are based on the Eighty-fifth Legislature, General Appropriations Act (GAA), 2018–19 Biennium.

Methods of financing higher education and the ways that appropriations can be expended are explained in the

Appropriations and Expenditures section. Each category of institution—general academic institutions, health related institutions, community and technical colleges, and Texas A&M System agencies—is presented separately. Appropriations made to THECB, the Texas A&M University System agencies, constitutional and statutory funds, and higher education employee benefits also are detailed in separate sections.

LEGISLATIVE APPROPRIATIONS Legislative appropriations for higher education provide funding for instruction, student services, administration, employee benefits, facility construction and renovation, capital equipment, non-formula support items that represent an institution’s area of expertise or special need, and student financial aid. Except for appropriations to THECB and the TAMU System agencies, Federal Funds are not included in appropriations for higher education. Institutions of higher education have discretion in their budgeting because they receive lump-sum appropriations, a single amount of funding that has few limits on transferability among strategies.

Th e Eighty-fifth Legislature, Regular Session, 2017, appropriated $17.7 billion in All Funds for the 2018–19 biennium to support Texas higher education (Figure 1), excluding employee benefi ts. This amount is a $154.3 million increase from appropriations for the 2016–17 biennium. It includes $202.2 million in General Revenue Funds and $36.1 million in Other Funds, off set by a decrease of $80.3 million in General Revenue–Dedicated Funds and a decrease of $3.6 million in Federal Funds.

Higher education formulas are supported by $7.2 billion in General Revenue Funds and $1.5 billion in General Revenue–Dedicated Funds. Included in these amounts are a decrease of $2.9 million in General Revenue Funds and an increase of $124.9 million in General Revenue–Dedicated Funds, which is primarily statutory tuition. Funding for institutions of higher education includes funding for non-formula support items, which are direct appropriations for projects specifi cally identified for support by the Legislature. Non-formula support item funding includes the following 2018–19 biennial appropriations:

LEGISLATIVE BUDGET BOARD STAFF – ID: 4909 LEGISLATIVE PRIMER REPORT – MARCH 2019 1

INTRODUCTION

FIGURE 1 HISTORICAL SPENDING FOR TEXAS PUBLIC HIGHER EDUCATION, 2008-09 TO 2018-19 BIENNIA

(IN MILLIONS)

METHOD OF FINANCE 2008–09 2010–11 2012–13 2014–15 2016–17 2018–19

General Revenue Funds $10,885.4 $10,848.0 $10,471.2 $11,029.4 $12,222.7 $12,424.9

General Revenue–Dedicated Funds $1,965.5 $2,173.4 $2,276.0 $2,437.4 $2,640.3 $2,560.0

Other Funds $6,302.7 $6,604.7 $8,080.3 $2,357.6 $2,390.7 $2,426.8

Federal Funds $308.6 $693.5(3) $322.0 $274.6 $279.3 $275.7

Total, Higher Education $19,462.2 $20,319.6 $21,149.5 $16,099.0 $17,533.1 $17,687.4

Percentage of Statewide Total 11.3% 10.8% 11.1% 7.9% 8.1% 8.5%

Statewide Total, All Articles $172,131.5 $187,516.5 $190,766.8 $203,300.5 $215,991.7 $216,608.3

Nගඍඛ: (1) Amounts shown do not include amounts related to employee benefits. (2) Amounts shown for the 2018–19 biennium are appropriated; amounts for other biennia are estimated or budgeted. (3) The Federal Funds amount for the 2010–11 biennium includes $326.9 million in American Recovery and Reinvestment Act funds. Sඝකඋඍ: Legislative Budget Board.

• $422.8 million in General Revenue Funds and General Revenue–Dedicated Funds for general academic institutions and system offices, a decrease of $165.7 million from 2016–17 biennial appropriations;

• $9.2 million in General Revenue Funds for the Lamar State Colleges, a decrease of $5.3 million from 2016–17 biennial appropriations;

• $17.4 million in General Revenue Funds for the Texas State Technical Colleges, a decrease of $8.0 million from 2016–17 biennial appropriations;

• $395.9 million in General Revenue Funds for health related institutions, which includes Th e University of Texas Rio Grande Valley School of Medicine, a decrease of $69.5 million from 2016–17 biennial appropriations; and

• $27.1 million for public community and junior colleges, a decrease of $4.4 million from 2016–17 biennial appropriations.

Appropriations for the 2018–19 biennium also refl ect direct support for research from the Legislature to general academic institutions through the following research funds:

• $125.2 million in General Revenue Funds for the Texas Research University Fund to the two eligible institutions, The University of Texas at Austin and Texas A&M University;

• $105.4 million in General Revenue Funds for Core Research Support to the state’s eight emerging research universities; and

• $12.8 million in General Revenue Funds for the Comprehensive Research Fund to institutions that are not eligible for either the Texas Research University Fund or Core Research Support.

Figure 2 shows the percentage of state funding appropriated to the various types of institutions, including Higher Education Group Insurance (HEGI), but excluding other employee benefi ts.

SIGNIFICANT ACTIONS OF THE EIGHTY-FIFTH LEGISLATURE, REGULAR SESSION, 2017

Th e Eighty-fifth Legislature, Regular Session, 2017, passed several bills that affect higher education institutions. Among the more significant are the following:

• Senate Bill 802 – Transfer of Course Credit. Th e legislation requires THECB to study and report regarding best practices in the transfer of course credit among public institutions of higher education by November 1, 2018;

• Senate Bill 810 – Open Educational Resources. Th e legislation establishes a grant program administered by THECB to encourage the use of open educational resources at public institutions of higher education and requires THECB to study the feasibility of establishing a state repository of open educational resources;

• House Bill 1913 – Allowable degrees off ered by University of North Texas Health Science Center. Th e legislation authorizes the University of North Texas

LEGISLATIVE PRIMER REPORT – MARCH 2019 LEGISLATIVE BUDGET BOARD STAFF – ID: 4909 2

INTRODUCTION

FIGURE 2 TEXAS PUBLIC HIGHER EDUCATION APPROPRIATION BY TYPE OF INSTITUTION, 2018–19 BIENNIUM

(IN MILLIONS) TOTAL=$19,099.6

Health Related Institutions Community, Technical, and State Colleges

$2,054.96 10.8%

TAMU System Agencies $1,002.98

5.3%

$5,669.07 29.7%

Nගඍඛ: (1) Appropriations exclude employee benefits other than Higher

Education Employees Group Insurance (HEGI). (2) Appropriations within the Other Higher Education category

include HEGI, the Texas Higher Education Coordinating Board, the Higher Education Fund, the Available University Fund, the Available National Research University Fund, and the Permanent Fund Supporting Military and Veterans Exemptions.

(3) TAMU=Texas A&M University. Sඝකඋඍ: Legislative Budget Board.

General Academic Institutions $7,210.89

37.8%

$3,161.74 16.6%

Other Higher Education

Health Science Center to offer a doctor of medicine degree program; and

• Senate Bill 2118 – Baccalaureate Degree Programs. The legislation authorizes THECB to authorize baccalaureate degree programs in applied science, applied technology, and applied nursing at a public community or junior college that previously participated in a pilot project. The legislation also authorizes THECB to authorize baccalaureate degree programs at a public junior college that already off ers a degree program in applied science, including a degree in applied science with an emphasis in early childhood education, applied technology, or nursing.


http:5,669.07

APPROPRIATIONS AND EXPENDITURES

Public institutions and agencies of higher education in Texas receive funding from appropriated and nonappropriated funds. Appropriated funds are allocated to public institutions and agencies of higher education in a number of ways through the General Appropriations Act (GAA). An institution may receive direct appropriations, which are allocated through the institution’s bill pattern, or indirect appropriations, which are appropriated elsewhere in the GAA and subsequently are allocated to the institution. Any nonappropriated funds that an institution receives are not included in the GAA.

APPROPRIATED FUNDS

The GAA establishes a key distinction for public higher education entities in Texas that differentiates them from other state agencies. The Texas Education Code, Section 61.059(k), directs the Legislature to encourage institutions of higher education to use appropriated funds at their discretion. This direction is achieved by appropriating base funding to each institution as a single, unrestricted amount known as a lump-sum appropriation. Unlike other state agencies, higher education institutions are not required to spend appropriations within a specified funding strategy, with certain limitations. For each institution, the GAA provides an informational listing of appropriated funds shown with each one’s lump-sum appropriation. Th is information shows how state funds are allocated, not how they must be spent.

Appropriated funds for higher education institutions are appropriated from All Funds through four methods of fi nance: General Revenue Funds; General Revenue–Dedicated Funds; Federal Funds; and Other Funds. The majority of those appropriations are allocated to institutions of higher education through funding formulas, which vary by type of institution. The Legislature’s allocation of state appropriations may diff er by groups of institutions, such as general academic institutions or community colleges. For example, all general academic institutions receive funding generated through an Instruction and Operations formula and an Infrastructure formula; community colleges receive a portion of their funding through an outcomes-based model for their Instruction and Administration formula. Within each type of institution, such

as the general academic institutions, state appropriations are allocated in a consistent manner.

General Revenue Funds are nondedicated appropriations and serve as the state’s primary operating fund. Most state tax revenue, many state fees, and various other sources of revenue are deposited as nondedicated General Revenue Funds. Appropriations from General Revenue Funds provide the majority of formula funding to higher education institutions. These appropriations also fund other areas of higher education, including the Texas A&M University (TAMU) System agencies, Higher Education Employees Group Insurance (HEGI), the Higher Education Fund, and certain financial aid programs at the Texas Higher Education Coordinating Board (THECB).

General Revenue–Dedicated Funds include accounts within the General Revenue Fund that are dedicated as a result of legislative action. For higher education institutions, the majority of appropriations from General Revenue–Dedicated Funds consists of statutory tuition and fee revenue generated by the institutions. These appropriations are considered local funds. The Texas Education Code, Section 51.009(a), defi nes local funds as net tuition, certain special course fees, lab fees, student teaching fees, hospital and clinic fees, organized activity fees, proceeds from the sale of educational and general equipment, and indirect cost-recovery fees. Th is revenue is accounted for as educational and general funds and is included in the GAA.

Although appropriations from General Revenue Funds directed to institutions is sum certain, or limited to the amount in each institution’s appropriations, the appropriation of Other Educational and General Income—primarily statutory tuition—is estimated. If tuition revenue that is generated by an institution is greater than the amount included in the GAA, the institution can spend at a level greater than the amounts in the GAA.

Federal Funds appropriations include grants, allocations, payments, or reimbursements received from the federal government by institutions. Federal Funds received by public higher education institutions are not appropriated in the GAA, other than those received by THECB and the TAMU System agencies..



Other Funds are state funds that are not included in General Revenue Funds or General Revenue–Dedicated Funds. These funds can be appropriated directly or indirectly. For institutions of higher education, examples of these funds include the Available University Fund, the National Research University Fund, and the Permanent Health Fund.

Figure 3 shows the methods of finance of the $19.1 billion in state appropriations for the 2018–19 biennium. Th is amount includes appropriations for HEGI.

DIRECT AND INDIRECT APPROPRIATED FUNDS

Public higher education institutions receive direct appropriations through funding formulas and other nonformula-funded appropriations. Direct appropriations are identified in the informational strategies of each institution’s bill pattern in the GAA and made to institutions as lump-sum appropriations. The informational strategies refl ect how state funds are allocated, not how they must be spent. With a few exceptions, higher education entities, unlike other state agencies, are not required to spend appropriations within a specified funding strategy.

Also included in appropriated funds are indirect appropriations, which are not allocated directly to an institution in its bill pattern in the GAA. Indirect appropriations initially are placed into other funding mechanisms on behalf of an institution before being redistributed and allocated to the institution. Institutions use indirect appropriations from General Revenue Funds and Other Funds to cover costs related to the institution’s employees for health insurance, retirement benefi ts, and Social Security.

NONAPPROPRIATED FUNDS

Nonappropriated funds include designated funds, auxiliary income, and patient income. Designated funds include designated tuition, all other fees, interest on local funds, restricted funds, earnings on endowments, revenue from contracts and grants, and gifts. Designated tuition, which is tuition in addition to statutory tuition, is set at each institution by its governing board. Designated tuition is defined in statute as an institutional fund, which means the revenue is not considered part of educational and general funds. Statute specifies that this revenue may not be used as a way to off set appropriations from General Revenue Funds in the GAA.

FIGURE 3 METHODS OF FINANCE FOR TEXAS PUBLIC HIGHER EDUCATION, INCLUDING HIGHER EDUCATION EMPLOYEES GROUP INSURANCE 2018–19 BIENNIUM

(IN MILLIONS) TOTAL = $19,099.6

General Revenue– Dedicated Funds

$2,560.0 (13.4%)

Federal Funds $275.7 (1.4%)

General Revenue Funds

$13,837.1 (72.4%)

Other Funds $2,426.8 (12.7%)

Sඝකඋඍ: Legislative Budget Board.

Auxiliary income includes revenue generated through intercollegiate athletics fees, bookstores, food services, transportation services, student health service pharmacies, student unions, residence halls, child development centers, and recreation centers. Student services fees are intended for activities that are separate from the institution’s regularly scheduled academic functions and that directly involve or benefit students. Such activities include textbook rentals, recreational activities, health-related services, cultural activities, and student transportation services. Incidental fees include late registration fees, library fi nes, microfi lming fees, thesis or doctoral manuscript reproduction or filing fees, and bad-check charges.

Public higher education institutions receive hospital and clinic revenues earned through patient-care activities, or patient income, as non-appropriated funds outside of the GAA. Before the 2014–15 biennium, institutions received these revenues as appropriations in the GAA.

EXPENDITURES

Higher education institutions have discretion in spending appropriated funds, with the following exceptions:

• the Texas Constitution, Article VII, Sections 18(i) and 17(j), prohibits, with limited exceptions, the use of General Revenue Funds for construction projects; an exception occurs when the Texas Legislature, by two-thirds vote in each chamber, opts to use General Revenue Funds for construction



projects following a natural disaster or when a project has demonstrated need;

• the Eighty-fifth Legislature, GAA, 2018–19 Biennium, Article III, Special Provisions, Section 6, prohibits the use of appropriated funds for auxiliary enterprises;

• Article III, Special Provisions, Section 6 (2018–19 GAA), limits the use of funds clearly labeled in informational strategies for revenue or tuition revenue bond retirement to pay debt service for tuition revenue bonds; any amount of an appropriation not spent must be returned to the General Revenue Fund at the end of the fi scal year;

• Article III, Special Provisions, Section 9 (2018–19 GAA), prohibits the use of appropriated funds for intercollegiate athletics purposes;

• Article III, Special Provisions, Section 12 (2018–19 GAA), prohibits the use of appropriated funds for the support or maintenance of alumni organizations or activities;

• the Texas Education Code, Section 130.003(c), restricts community and junior colleges to spending General Revenue Funds for instruction and administrative costs only; and

• certain institutions have budget riders that require appropriated funds to be spent on a particular program.


FUNDING GENERAL ACADEMIC INSTITUTIONS

Texas’ general academic institutions are included in the Texas Education Code, Section 61.003. Figure 4 shows the institutions and their enrollments. All of the institutions have common goals of instruction, research, and public service; however, each has a unique set of academic off erings and a unique regional or statewide mission.

Figure 5 shows the methods of finance for appropriations for general academic institutions, including a number of indirect appropriations. Appropriations for employee retirement benefits are not included.

Appropriations that benefit institutions that are not shown in their individual bill patterns include the Higher Education Fund, the Available National Research University Fund, Available University Fund, Higher Education Employees Group Insurance, and Texas Research Incentive Program

FIGURE 4 TEXAS PUBLIC GENERAL ACADEMIC INSTITUTIONS, FALL 2017

INSTITUTION ENROLLMENT

Angelo State University 10,189

Lamar University 13,929

Midwestern State University 5,661

Prairie View A&M University 9,125

Sam Houston State University 20,938

Stephen F. Austin State University 12,578

Sul Ross State University 1,996

Sul Ross State University, Rio Grande College 974

Tarleton State University 13,019

Texas A&M International University 7,640

Texas A&M University 62,802

Texas A&M University – Central Texas 2,575

Texas A&M University – Commerce 12,490

Texas A&M University – Corpus Christi 12,236

Texas A&M University at Galveston 1,998

Texas A&M University – Kingsville 8,674

Texas A&M University – San Antonio 6,460

Texas A&M University – Texarkana 2,038

Texas Southern University 10,237

Nගඍ: Enrollment based on certified fall 2017 headcount. Sඝකඋඍ: Texas Higher Education Coordinating Board.

funds that are trusteed to the Texas Higher Education Coordinating Board (THECB).

Figure 6 shows the percentage of funding related to these direct and indirect appropriations.

In addition, general academic institutions have access to funds that are not represented in the state appropriations process. Examples include certain tuition and fees, such as designated tuition and incidental fees (see Appendix B); indirect cost recovery (see Appendix C); auxiliary operations (i.e., revenue from athletics, student services fees, bookstores, and parking); and grants and gifts.

FORMULA FUNDING Approximately 47.5 percent of state appropriations for general academic institutions are allocated via two funding

INSTITUTION ENROLLMENT

Texas State University 38,666

Texas Tech University 36,634

Texas Woman’s University 15,321

The University of Texas at Arlington 41,712

The University of Texas at Austin 51,425

The University of Texas at Dallas 27,642

The University of Texas at El Paso 25,020

The University of Texas Rio Grande Valley 27,708

The University of Texas of the Permian Basin 7,022

The University of Texas at San Antonio 30,674

The University of Texas at Tyler 9,934

University of Houston 45,364

University of Houston – Clear Lake 8,542

University of Houston – Downtown 13,913

University of Houston – Victoria 4,351

University of North Texas 38,081

University of North Texas at Dallas 3,509

West Texas A&M University 10,060

Statewide Totals 651,137



formulas and two supplements: the Instruction and Operations formula; the Teaching Experience Supplement; the Infrastructure Support formula; and the Small Institution Supplement. The formulas and supplements are direct appropriations based primarily on enrollment.

Formula appropriations consist of General Revenue Funds and some General Revenue–Dedicated Funds in the form of Other Educational and General (Other E&G) Income. Other E&G Income includes specific tuition and fee revenue (see Appendix B). The inclusion of certain tuition and fee revenue in the formula funding calculation is referred to as an All Funds methodology. The most signifi cant tuition revenue included in the calculation is tuition charged in accordance with the Texas Education Code, Section 54.051, Interim Tuition Rates, which is referred to as statutory tuition. The statutory tuition rate for academic year 2018–19 is $50 per semester credit hour for Texas residents. Th e corresponding tuition rate for a nonresident student is the average nonresident tuition charged to a Texas resident at a public university in each of the five most populous states other than Texas.

Of the $4.8 billion allocated by the general academic formulas and supplements, nearly 68.2 percent consists of General Revenue Funds, with the remainder consisting of General Revenue–Dedicated Funds (Other E&G).

A portion of Other E&G income is set aside for specifi c purposes or allocated to non-formula-based strategies in the institution’s bill pattern. For example, institutions set aside a

FIGURE 5 METHODS OF FINANCE FOR TEXAS GENERAL ACADEMIC

INSTITUTIONS, 2018–19 BIENNIUM

TOTAL=$10,365.2 MILLION

General Revenue–Dedicated

Funds

(22.6%)

General Revenue Funds

(61.0%)

Other Funds (17.9%)

Nගඍ: Includes direct and certain indirect appropriations.Sඝකඋඍ: Legislative Budget Board.

portion of their tuition to provide Texas Public Education Grants (TPEG). TPEGs are intended to help students cover tuition, fees, and textbook costs when these expenses exceed a certain portion of their families’ contributions to their educations. This set-aside revenue is not part of the tuition and fee revenue used to calculate the funding formulas.

INSTRUCTION AND OPERATIONS FORMULA

About 83.1 percent of formula funds are calculated through the Instruction and Operations formula ($4,143.1 million for the 2018–19 biennium) and Teaching Experience Supplement ($95.4 million for the 2018–19 biennium). Th e Instruction and Operations formula is calculated as follows:

FIGURE 6 APPROPRIATIONS FOR TEXAS GENERAL ACADEMIC INSTITUTIONS, 2018–19 BIENNIUM

Institutional Enhancement (2.5%)

Infrastructure Formula (7.2%)

Teaching Experience

(0.9%)

Instruction and Operations Formula (40.1%)

Non-formula Support Items (3.7%)

Comprehensive Research Fund TOTAL=$10,392.8 MILLION (0.1%)

Texas Research University Fund (1.5%)

Core Research Support Fund (1.0%)

Texas Research Incentive Program (0.3%)

Constitutional Funds (24.1%)

Higher Education Employees Group Insurance

(5.9%)

Capital Funds (7.0%)

Hold Harmless (1.4%)

Nගඍ: Includes direct and certain indirect appropriations. Sඝකඋඍ: Legislative Budget Board.

10 LEGISLATIVE PRIMER REPORT – MARCH 2019 LEGISLATIVE BUDGET BOARD STAFF – ID: 4909


Semester Credit Hours x Program and Level Weight x Rate ($55.82)

Semester credit hours (SCH) are a measurement of how many classes, and the number of students enrolled in those classes, an institution delivers. The formula calculation for a biennium uses a base period of SCH. The base period used for the 2018–19 biennium was the combination of summer 2016, fall 2016, and spring 2017.

SCH is weighted by discipline (e.g., nursing is weighted more than liberal arts) and by level (i.e., lower and upper division; masters, doctoral, and professional degrees) based on a cost-based funding matrix. The matrix used for the 2018–19 biennium is based on the most recent expenditure study from THECB. For instance, a lower-division liberal arts course receives a weight of 1.0, and a doctoral-level liberal arts course receives a weight of 10.90. Similarly, a nursing lower-division course receives a weight of 1.49, and a doctoral nursing course receives a weight of 9.57. Beginning with the Seventy-ninth Legislature, General Appropriations Act (GAA), 2006–07 Biennium, the basis for the weights per discipline was shifted to an aggregation of actual costs based on institutions’ annual financial reports. THECB uses a rolling three-year average to adjust the weights each biennium.

THECB recommends a rate based on its weights and program enhancements. The Legislature sets the weights and the rate in the GAA, Article III, Special Provisions Relating Only to State Agencies of Higher Education. In practice, the Legislature has set the rate based on available funding, including consideration of enrollment changes and other factors.

TEACHING EXPERIENCE SUPPLEMENT

For the 2018–19 biennium, an additional weight of 10.0 percent is added to lower-division and upper-division semester credit hours taught by tenured and tenure-track faculty. Th e Eighty-fifth Legislature, GAA, 2018–19 Biennium, Article III, Special Provisions Relating Only to State Agencies of Higher Education, Section 26, directs that the weight should increase by 10.0 percent per biennium, up to 50.0 percent.

The Teaching Experience Supplement is calculated as follows:

Semester Credit Hours x Program and Level Weight x Supplement (0.10) x Rate ($55.82)

The Teaching Experience Supplement was 5.0 percent during the 1998–99 and 2000–01 biennia. Th e Seventy-seventh

FIGURE 7 DISTRIBUTION OF TEXAS PUBLIC HIGHER EDUCATION INSTRUCTION AND OPERATIONS FORMULA AND TEACHING EXPERIENCE SUPPLEMENT, 2018–19 BIENNIUM

TOTAL=$4,238.5 MILLION

University of Texas at Austin (10.7%)

Texas A&M University (13.0%)

University of Houston (7.9%)

Texas Tech University (6.6%)

University of North Texas (5.4%)


Other General Academic

Instiutions (56.1%)

Legislature, 2001, increased the supplement to 10.0 percent beginning for the 2002–03 biennium.

Figure 7 shows the Instruction and Operations formula and the Teaching Experience Supplement allocation to institutions.

INFRASTRUCTURE SUPPORT FORMULA

Approximately 16.9 percent of the general academic institutions’ formula funds are calculated through the Infrastructure Support formula and Small Institution Supplement ($748.3 million for the 2018–19 biennium). In addition to the universities, the Lamar State Colleges and components of the Texas State Technical College System also receive infrastructure formula appropriations. Th is formula uses a statewide infrastructure rate, which is set in the GAA. The statewide infrastructure rate is divided into two rates: an Adjusted Utility Rate and an All Other Rate. As with the SCH rate, the Legislature has set the rate based on available funding, including consideration of changes in institutional space and other factors.

The Infrastructure Support formula is calculated as follows:

(Adjusted Utility Rate + All Other Rates) x Predicted Square Feet

The Adjusted Utility Rate is 41.1 percent of the statewide infrastructure rate. The utility rate considers the percentage of infrastructure formula funds that institutions historically spent on utilities. A statewide utility rate is determined and then adjusted for each institution to consider utility costs relative to other institutions.



The All Other Rate is 58.9 percent of the statewide infrastructure rate and remains constant among institutions. It accounts for physical plant, grounds, maintenance, and custodial services.

THECB’s Space Projection Model for Higher Education Institutions in Texas estimates square footage for each institution. The objective of the space model projection is to calculate the amount of space an institution needs based on the following:

• number, program, and level of semester credit hours;

• number of faculty, nonfaculty, students, programs, and library holdings; and

• research and current educational and general expenditures.

Figure 8 shows the Infrastructure Support formula allocation to institutions. The similarity of the allocation to the Instruction and Operations formula allocation shows the influence of enrollment on both formula allocations.

SMALL INSTITUTION SUPPLEMENT

Before 2009, general academic institutions with enrollments of less than 5,000 received a $750,000 annual Small Institution Supplement. Th e Eighty-first Legislature, Regular Session, 2009, increased the enrollment threshold to 10,000 students and gradually implemented the supplement for the 2010–11 biennium. This methodology has been continued into each subsequent biennium. Figure 9 shows 2018–19 biennial recipients. This supplement considers that institutions have a minimum cost of operation that might not be covered by funds generated through the formulas.

NON-FORMULA FUNDING Non-formula funding consists of state appropriations for public general academic institutions that are allocated without following the previously discussed formulas and supplements.

GENERAL REVENUE FUNDS

Non-formula funding that is appropriated from General Revenue Funds may include non-formula support items, hold harmless funds, funding for workers’ and unemployment compensation insurances, and other funding.

NON-FORMULA SUPPORT ITEMS Appropriations for non-formula support items, formerly known as special items, are direct appropriations to

FIGURE 8 DISTRIBUTION OF TEXAS PUBLIC HIGHER EDUCATION

INFRASTRUCTURE SUPPORT FORMULA AND SMALL

INSTITUTION SUPPLEMENT, 2018–19 BIENNIUM

TOTAL=$748.3 MILLION

University of Texas at Austin (16.1%)

Other General Academic

Institutions (53.0%)


Texas A&M University (11.9%)

University of Houston (7.3%)

Texas Tech University (6.6%)

University of North Texas (5.0%)

institutions for projects that are not funded by formula but are identifi ed specifically by the Legislature as needing support. Non-formula item appropriations to general academic institutions and university system offices total $422.8 million in General Revenue Funds and General Revenue–Dedicated Funds for the 2018–19 biennium, a decrease of $165.7 million from the 2016–17 biennium. An institution is not required to spend the amount identifi ed in a non-formula support item strategy for that particular project, but expenditure reports indicate that institutions often use an entire appropriation, along with additional funding, for the related project. Most non-formula items are funded through General Revenue Funds, but a few items receive appropriations from General Revenue–Dedicated accounts or Other Funds.

The majority of non-formula support item funding is through the Institutional Enhancement strategy. Th is strategy is a direct appropriation to institutions that was established by the Seventy-sixth Legislature, 1999, for the 2000–01 biennium. Th e first Institutional Enhancement appropriation was based on a consolidation of certain special item appropriations in 1999, and an additional $1.0 million per year was appropriated for each institution. Examples of consolidated special items are items that could be funded through the formulas such as general institutional, academic, and research support.

For the 2002–03 biennium, the Seventy-seventh Legislature, 2001, appropriated an additional $1.0 million increase for most institutions and a $1.5 million increase



FIGURE 9 TEXAS PUBLIC HIGHER EDUCATION SMALL INSTITUTION SUPPLEMENT RECIPIENTS, 2018–19 BIENNIUM

INSTITUTION ENROLLMENT SUPPLEMENT

The University of Texas of the 6,524 $1,042,800 Permian Basin

The University of Texas at Tyler 9,416 $175,200

Texas A&M University at 2,178 $1,500,000 Galveston

Prairie View A&M University 8,762 $371,400

Texas A&M University – Central 2,619 $1,500,000 Texas

Texas A&M University – Kingsville 9,278 $216,600

Texas A&M University – San 5,474 $1,357,800 Antonio

Texas A&M International University 7,390 $783,000

West Texas A&M University 9,901 $29,700

Texas A&M University – Texarkana 1,993 $1,500,000

University of Houston – Clear Lake 8,669 $399,300

University of Houston – Victoria 4,144 $1,500,000

Midwestern State University 5,682 $1,295,400

Nගඍ: Enrollment based on certified fall 2016 headcount. Sඝකඋඍ: Legislative Budget Board.

INSTITUTION ENROLLMENT SUPPLEMENT

University of North Texas at Dallas 3,030 $1,500,000

Texas Southern University 8,862 $341,400

Angelo State University 9,475 $157,500

Sul Ross State University 2,071 $1,500,000

Sul Ross State University Rio 1,014 $1,500,000 Grande College

Texas State Technical College – 5,765 $635,250 Harlingen

Texas State Technical College – 1,519 $750,000 West Texas

Texas State Technical College – 4,003 $750,000 Waco

Texas State Technical College – 777 $750,000 Marshall

Lamar Institute of Technology 2,757 $750,000

Lamar State College – Orange 2,338 $750,000

Lamar State College – Port Arthur 2,051 $750,000

for selected institutions in South Texas and the border region. Institutions that benefited from the University Research and Texas Excellence funds (House Bill 1839, Seventy-seventh Legislature, 2001) or from the Permanent University Fund excellence funding did not receive an increase in Institutional Enhancement funds for the 2002–03 biennium.

For the 2014–15 biennium, an additional $1.0 million increase was appropriated for Institutional Enhancement to all institutions that were not classified as a research or emerging research university by the THECB Accountability System.

Other non-formula support items include institutional and instructional support, public service items, research items other than general research support, funding for separate campuses, and accreditation program items.

HOLD HARMLESS FUNDS

In past sessions, the Legislature has appropriated hold harmless funding (General Revenue Funds) for institutions to ensure consistent biennial funding in relation to decreases or

reallocations to formula and special item funding. Decreases in formula funding could be caused by decreasing enrollment, a shift from upper-level or graduate semester credit hours to lower-level hours, a smaller increase in enrollment than other institutions, or a change in utility costs. When appropriated, hold harmless funding amounts have been calculated by considering either a decrease in formula funding only or due to total formula and non-formula appropriation decreases. The 2018–19 GAA includes $141.1 million in General Revenue Funds as hold harmless funding to various general academic institutions and system offices. Hold harmless funding provides that no institution receives less than a 10.0 percent decrease in General Revenue Funds and General Revenue–Dedicated funds from 2016–17 biennial formula, special item, and trusteed funding levels.

WORKERS’ COMPENSATION INSURANCE AND UNEMPLOYMENT COMPENSATION INSURANCE

Many institutions receive appropriations from General Revenue Funds for workers’ compensation insurance and unemployment compensation insurance. (See the Benefi ts section.)



OTHER NON-FORMULA FUNDING

General academic institutions receive support from the following research funds: the Texas Research University Fund, the Core Research Support Fund, the Comprehensive Research Fund, the Texas Research Incentive Program, and the National Research University Fund. (See the Constitutional and Statutory Funds section.)

General academic institutions also receive capital funding from two constitutional funds: the Available University Fund and the Higher Education Fund. (See the Constitutional and Statutory Funds section.) In addition to the constitutional funds are two types of state appropriation for capital funds: tuition revenue bonds and lease payments. Almost all of the direct appropriations to institutions related to capital funds are for debt service on tuition revenue bonds. (See the Tuition Revenue Bond Debt Service section.) General academic institutions previously were authorized to issue Skiles Education Act bonds, which were bonds backed by statutory tuition. Th is statutory authority was repealed in 1997, and all Skiles Act bonds have been completed.

General academic institutions also receive appropriations to help institutions cover the cost of the following benefi ts: health insurance premiums for institution employees whose salaries are paid from the General Revenue Fund, Social Security benefits, and retirement contributions. (See the Benefi ts section.)

GENERAL REVENUE–DEDICATED FUNDS

Texas’ public general academic institutions also may receive non-formula funding that is appropriated from General Revenue–Dedicated Funds.

TEXAS PUBLIC EDUCATION GRANTS

Pursuant to the Texas Education Code, Chapter 56, Subchapter C, and the Texas Education Code, Section 54.051, institutions must set aside a portion of tuition revenue for TPEGs. Fifteen percent of each resident student’s tuition and 3.0 percent of each nonresident student’s tuition are set aside for financial aid to students at the institution. The Texas Education Code, Section 56.033, provides guidelines regarding the allocation of TPEG revenue. The GAA includes an estimate of the amount of TPEG revenue each institution will generate. Th is estimated appropriation is considered General Revenue–Dedicated Funds, Other E&G Income.

ORGANIZED ACTIVITIES Organized Activities are activities or enterprises connected with instructional departments whose primary function is training for students. Examples include a university farm, nursery or preschool programs, an optometry clinic, and lifeguard training. Revenue from Organized Activities is classified as General Revenue–Dedicated Funds, Other E&G Income.

STAFF GROUP INSURANCE Institutions receive General Revenue–Dedicated Funds, Other E&G Income, in staff group insurance amounts for staff whose salaries are not paid with appropriations from General Revenue Funds. (See the Higher Education Benefi ts section for more information.)


FUNDING HEALTH RELATED INSTITUTIONS

Texas provides funding to 12 health related institutions that operate within four university systems. Funding also is provided to Baylor College of Medicine through the Texas Higher Education Coordinating Board bill pattern. Health related institutions are located across the state, operating 12 state medical schools, three dental schools, three pharmacy schools, and multiple allied health and nursing units. Figure 10 shows the locations of the health related institutions for each of the four university health science systems, and Figure 11 shows the regional campuses for each system.

Appropriations for the health related institutions are similar in structure to the appropriations for general academic institutions. Formula and non-formula funding appropriations are made directly to the institutions.

Appropriations also are made that benefit the institutions but are not included in their bill patterns, such as money from the Available University Fund, certain staff benefi ts, and funds trusteed at the Texas Higher Education Coordinating Board (THECB). Included in the direct appropriations is funding appropriated to The University of Texas Rio Grande Valley for the operation of its School of Medicine, and funding to The University of Texas at Austin for the Dell Medical School. Figure 12 shows the fall 2017 enrollment for each of the 12 health related institutions.

Like other institutions of higher education, health related institutions receive lump-sum appropriations, and funding strategies are presented for informational purposes in the General Appropriations Act (GAA). The funding strategies

FIGURE 10 TEXAS PUBLIC HEALTH RELATED INSTITUTIONS, 2018–19 BIENNIUM

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FIGURE 11 TEXAS PUBLIC HEALTH RELATED REGIONAL CAMPUSES BY INSTITUTION, 2018–19 BIENNIUM

INSTITUTION CAMPUSES

The University of Texas Health Science Center at Houston – School of Public Health

The University of Texas Health Science Center at San Antonio

The University of Texas Southwestern Medical Center at Dallas

The University of Texas Medical Branch at Galveston

Texas A&M University System Health Science Center

Texas Tech University Health Sciences Center

Texas Tech University Health Sciences Center at El Paso

• Brownsville Regional Campus – Regional Academic Health Center;

• El Paso Regional Campus;

• Laredo Regional Campus

• Austin Regional Campus

• Austin Regional Campus

• San Antonio Regional Campus; • Austin Regional Campus; and • Dallas Regional Campus

• College of Medicine, School of Rural Public Health, College of Nursing, School of Graduate Studies – Bryan/College Station;

• Baylor College of Dentistry, School of Dental Hygiene, School of Graduate Studies – Dallas;

• Institute of Biosciences and Technology, School of Graduate Studies – Houston; • Coastal Bend Health Education Center – Corpus Christi; • Irma Lerma Rangel College of Pharmacy – Kingsville; • South Texas Center, School of Rural Public Health – McAllen; • College of Medicine, School of Rural Public Health, School of Graduate Studies –

Temple; and • College of Medicine, College of Nursing – Round Rock

• School of Medicine, School of Allied Health Sciences, School of Nursing, School of Pharmacy, Graduate School of Biomedical Sciences – Lubbock;

• School of Medicine, School of Allied Health Sciences, School of Pharmacy, Graduate School of Biomedical Sciences – Amarillo;

• School of Medicine, School of Allied Health Sciences, School of Nursing – Odessa; • School of Medicine, School of Allied Health Sciences – Midland; • School of Pharmacy – Dallas; and • School of Nursing, School of Pharmacy, Graduate School of Biomedical Sciences –

Abilene

• Paul L. Foster School of Medicine, Gayle Greve Hunt School of Nursing – El Paso

Sඝකඋඍඛ: The University of Texas System; Texas A&M University System; Texas Tech University System.

FIGURE 12 TEXAS PUBLIC HEALTH RELATED INSTITUTIONS ENROLLMENT, FALL 2017

INSTITUTION ENROLLMENT INSTITUTION ENROLLMENT

The University of Texas Southwestern Medical Center

2,235 University of North Texas Health Science Center

2,270

The University of Texas Medical Branch at Galveston

3,302 Texas Tech University Health Sciences Center

4,676

The University of Texas Health Science Center at Houston

5,242 Texas Tech University Health Sciences Center at El Paso

662

The University of Texas Health Science Center at San Antonio

3,270 The University of Texas Rio Grande Valley School of Medicine

101

The University of Texas M.D. Anderson Cancer Center

357 The University of Texas at Austin Dell Medical School

100

The University of Texas Health Science Center at Tyler

36

Texas A&M University System Health Science Center

2,780 Statewide Totals 25,031

Nගඍ: Enrollment based on certified fall 2017 headcount. Sඝකඋඍ: Texas Higher Education Coordinating Board.



in a health related institution’s bill pattern represent how state funds are allocated but not how they must be spent. In addition, certain methods of finance within the appropriation are estimated.

Health related institutions have access to an estimated $26.2 billion in addition to appropriations for the 2018–19 biennium. Examples include patient income, certain tuition revenue, indirect cost recovery, grants, and gifts.

Figure 13 shows the 2018–19 biennium methods of fi nance for $3.2 billion in appropriations for health related institutions, excluding appropriations for employee benefi ts. This amount includes $3.1 billion, or 96.7 percent, in General Revenue Funds and General Revenue–Dedicated Funds. General Revenue–Dedicated Funds include income from tuition and student fees. The appropriations also include $103.5 million in Other Funds. Patient income, which is revenue that an institution generates through the operation of a hospital, clinic, or dental clinic (inpatient and outpatient charges), is not appropriated to the health related institutions, but is shown in informational riders in the GAA for the institutions that receive this funding.

FORMULA FUNDING

The three primary funding formulas for health related institutions are Instruction and Operations (I&O) Support, Infrastructure Support, and Research Enhancement. Th e University of Texas M.D. Anderson Cancer Center (UTMDACC) and The University of Texas Health Science Center at Tyler have additional formula allocations to support their unique missions. Each health related institution also receives formula funding for graduate medical education.

General Revenue Funds and certain General Revenue– Dedicated Funds (Other Educational and General Funds) support the formulas. As it is for general academic institutions, certain tuition revenue is used in the calculation of the I&O Support and Infrastructure Support formulas. Of the $1.6 billion that is allocated by the health related institutions’ primary formulas, 90.3 percent is from General Revenue Funds, and the remaining 9.7 percent is from General Revenue–Dedicated Funds, which includes statutory tuition and fees and board-authorized tuition revenue.

Some tuition and fee income is set aside for specifi c purposes and is unavailable for formula funding. For example, health related institutions set aside a portion of their tuition to provide Texas Public Education Grants.

FIGURE 13 METHODS OF FINANCE FOR TEXAS PUBLIC HEALTH

RELATED INSTITUTIONS, 2018-19 BIENNIUM

(IN MILLIONS) TOTAL=$3,161.7

General Revenue–Dedicated

Funds (1)

$203.3

(6.4%) General Revenue Funds

$2,855.0 (90.3%)

Other Funds $103.5 (3.3%)

Nගඍ: General Revenue–Dedicated Funds include statutory tuitionand fees.Sඝකඋඍ: Legislative Budget Board.

INSTRUCTION AND OPERATIONS FORMULA

The I&O Support formula represents nearly 78.0 percent of the primary formula funds for public health related institutions ($1,236.3 million for the 2018–19 biennium). Baylor College of Medicine receives an additional $76.1 million of I&O Support appropriated through the Texas Higher Education Coordinating Board. I&O Support is intended to fund items such as faculty salaries, departmental operating expenses, instructional administration, and libraries, and it is allocated per full-time-student equivalent (FTSE) with a funding weight predicated on the student’s instructional program. This formula applies to all 12 operational health related institutions.

Figure 14 shows the I&O Support formula allocation among the health related institutions that received such funding during the 2018–19 biennium.

The following formula calculates I&O Support:

[FTSE x Program Weight x Rate ($9,431)] + Small Campus Supplement

FTSE is weighted by discipline. For example, medicine (4.753) is weighted more than pharmacy (1.670), with allied health being assigned a base weight of 1.000.

The Legislature set the weights and the rate ($9,431 for the 2018–19 biennium) in the Eighty-fifth Legislature, GAA, 2018–19 Biennium, Article III, Special Provisions, Section 27. The rate is calculated based on the available revenue for the formula and the number of FTSEs.



FIGURE 14 DISTRIBUTION OF INSTRUCTION AND OPERATIONS SUPPORT FORMULA TO TEXAS PUBLIC HEALTH RELATED INSTITUTIONS, 2018–19 BIENNIUM

UT Southwestern Medical Center UT Medical Branch

at Galveston

UT Health Science Center at San Antonio

$173.8 (14.1%)

$6.8 (0.6%)

$193.8 (15.7%)

(IN MILLIONS) Texas A&M University UT M.D. Anderson Cancer Center Health Science Center University of North Texas

Health Science Center $135.0

UT Health Science Center (10.9%)at Tyler

$1.2 (0.1%)

UT Health Science Center at Houston

$236.2 (19.1%)

$138.0 $108.7 (11.2%) (8.8%)

Nගඍ: UT=The University of Texas System. Sඝකඋඍ: Legislative Budget Board.

TOTAL=$1,236.3

Texas Tech University Health

Sciences Center at Lubbock

$191.6 (15.5%)

Texas Tech University Health

Sciences Center at El Paso

$41.8 (3.4%)

UT Austin Dell School

of Medicine

$4.5 (0.4%)

UT Rio Grande Valley

School of Medicine

$4.9 (0.4%)

In addition, instructional programs with enrollments of fewer than 200 students at remote individual campuses receive a Small Campus Supplement, which is additional funding to compensate for diseconomies of scale. Th e additional funding per student is distributed based on a sliding scale, with smaller programs receiving more. Th e following institutions received the supplement for the 2018–19 biennium:

• The University of Texas Medical Branch at Galveston;

• The University of Texas Health Science Center at Houston;

• The University of Texas Health Science Center at San Antonio;

• The University of Texas Health Science Center at Tyler;

• Texas A&M University Health Science Center; and

• Texas Tech University Health Sciences Center.

INFRASTRUCTURE SUPPORT FORMULA

The Infrastructure Support formula is 16.9 percent of the health related institutions’ primary formula funding and is intended for utilities and physical plant support ($267.6 million for the 2018–19 biennium). This formula calculation is similar to that for general academic institutions and

distributes funding based on each institution’s predicted square feet during the base year multiplied by the Infrastructure Support rate established by each legislature ($6.11 for the 2018–19 biennium).

THECB’s space model predicts square footage for each institution based on the following criteria:

• number and level of FTSEs;

• number of faculty;

• number of programs and campuses;

• actual clinical space; and

• research and current educational and general expenditures.

The following formula calculates Infrastructure Support:

Rate ($6.11 for Health Related Institutions) x Predicted Square Feet

The space projection model does not account for hospital space. Separate infrastructure funding for hospital space is included in the total funding for hospital and patient-care activities at the UT Medical Branch at Galveston, UTMDACC, and the UT Health Science Center at Tyler.

Figure 15 shows the Infrastructure Support formula allocation to the nine institutions that received infrastructure funding during the 2018–19 biennium.



FIGURE 15 DISTRIBUTION OF INFRASTRUCTURE SUPPORT FORMULA TO TEXAS PUBLIC HEALTH RELATED INSTITUTIONS 2018–19 BIENNIUM

UT Medical Branch at Galveston

$26.3 (9.8%)

UT Health Science Center at San Antonio

$27.7 (10.3%)

(1.0%)

(IN MILLIONS)

UT M.D. Anderson Cancer Center $64.4

(24.1%)

UT Health Science Center at Houston

$42.1 (15.7%)


UT Health Science Center Texas A&M University TOTAL=$267.6 at Tyler Health Science Center

$2.6 $17.2 (6.4%) University of North Texas

Health Science Center at Fort Worth $9.8

Texas Tech University (3.7%) Health Sciences Center

$17.8 (6.6%) Texas Tech University

Health Sciences Center at El Paso $5.8

UT Austin Dell Medical School (2.2%) $1.5

(0.6%)

UT Southwestern Medical Center UTRGV School of Medicine at Dallas

$2.3$50.0 (0.9%) (18.7%)

RESEARCH ENHANCEMENT FORMULA

Health related institutions generate state appropriations to support research through General Revenue Funds in the Research Enhancement formula ($80.6 million for the 2018–19 biennium). The Research Enhancement formula accounts for 5.6 percent of the primary formula funds and is funded entirely from General Revenue Funds.

The allocation is based on the amount of research generated by each institution.

$1,412,500 + (1.16% x Research

Expenditures)

This amount provides a Institutions report base for all institutions, current research

regardless of research expenditures volume to THECB

Figure 16 shows the Research Enhancement formula allocation to the 12 health related institutions that received Research Enhancement funding during the 2018–19 biennium.

GRADUATE MEDICAL EDUCATION FORMULA

The Seventy-ninth Legislature, Regular Session, 2005, established a formula for funding graduate medical education (GME) during the 2006–07 biennium. For the 2018–19 biennium, GME formula funding totals $90.1 million in General Revenue Funds (including

$15.4 million that is appropriated to Baylor College of Medicine through THECB) and provides $5,824 per medical resident each year.

The following formula calculates GME funding:

Rate ($5,824) x Number of Medical Residents

In addition to the GME formula funding, the Eighty-fi fth Legislature, 2017, appropriated to THECB $97.1 million in All Funds for the GME Expansion program, an increase of $44.1 million from the 2016–17 biennium. Th is increase consists of $22.3 million in General Revenue Funds and $21.8 million in anticipated distributions from the Permanent Fund Supporting Graduate Medical Education. The GME Expansion program supports one-time GME planning and partnership grants, funding to enable new or existing GME programs to increase the number of fi rst-year residency positions, funding for unfilled residency positions, and continuation awards for programs that received grant awards during fiscal year 2015. THECB also was appropriated $10.0 million for the Family Practice Residency Program for the 2018–19 biennium, a decrease of $6.8 million. THECB allocates the funds based on the certified number of residents training in each approved family practice residency program.

Figure 17 shows the GME formula allocation to the 12 health related institutions and Baylor College of Medicine.



FIGURE 16 DISTRIBUTION OF RESEARCH ENHANCEMENT FORMULA TO TEXAS HEALTH RELATED INSTITUTIONS 2018–19 BIENNIUM

(IN MILLIONS) TOTAL=$80.6UT Health Science Center Texas A&M University at Tyler Health Science Center University of North Texas

UT M.D. Anderson Cancer Center Health Science Center at Fort $21.1

$3.1 $5.7 (7.0%) Worth

(26.2%)

UT Southwestern Medical Center at Dallas

UT Medical Branch

(3.9%)

(4.7%)

$3.9 (4.8%)

UT Health Science Center Texas Tech Universityat San Antonio Health Sciences Center $6.7 Texas Tech University$3.8(8.4%) Health Sciences Center at

UT Health Science Center El Paso $3.2at Houston UT Austin Dell Medical School

$8.0 $2.9 (4.0%) (9.9%) (3.6%)

UTRGV School of Medicine at Galveston $3.1

$6.2 $12.9 (3.9%) (7.7%) (15.9%)


CHEST DISEASE CENTER OPERATIONS FORMULA

The Chest Disease Center Operations formula, implemented during the 2010–11 biennium, applies only to Th e UT Health Science Center at Tyler. The institution has a statutory mission to conduct research, develop diagnostic and treatment techniques, provide training and teaching programs, and diagnose and treat inpatients and outpatients with respiratory diseases. The formula is based on the number of primary chest disease patients the institution served. Approximately $58.4 million in General Revenue Funds was appropriated for this formula for the 2018–19 biennium. Beginning in the 2016–17 biennium, the formula growth in funding may not exceed the average growth in funding for health related institutions in the I&O Support formula.

The following formula calculates Chest Disease Center Operations funding:

Rate ($187) x Number of Primary Chest Disease Cases

CANCER CENTER OPERATIONS FORMULA

The Eightieth Legislature, 2007, established in the 2008–09 GAA an operations formula for funding UTMDACC, which has a statutory mission to eliminate cancer through patient care, research, education, and prevention. Th is Cancer Center Operations formula funding is based on the total number of Texas cancer patients the institution served. Th e

formula growth in funding may not exceed the average growth in funding for health related institutions in the Instruction and Operations Support formula for the current biennium. For the 2018–19 biennium, the Legislature appropriated $264.8 million in General Revenue Funds for this formula.

The following formula calculates Cancer Center Operations funding:

Rate ($1,650) x Number of Texas Cancer Patients Served

NON-FORMULA FUNDING State appropriations for public health-related institutions that are allocated without following the previously described formulas and supplements are called non-formula funding.

NON-FORMULA SUPPORT ITEMS

Non-formula Support items are activities that are not funded through the formulas and typically represent an institution’s special needs or areas of expertise. The $395.9 million in General Revenue Funds appropriated to health related institutions for the 2018–19 biennium funds items such as academic outreach programs, public service items, and research items other than general research support. Institutions propose and justify special items and request an appropriation amount for each individually.



FIGURE 17 DISTRIBUTION OF GRADUATE MEDICAL EDUCATION FORMULA TO TEXAS HEALTH RELATED INSTITUTIONS 2018–19 BIENNIUM

(IN MILLIONS) UT Health Science Center UT M.D. Anderson UT Health Science Center TOTAL=$90.1Texas A&M University at San Antonio Cancer Center at Tyler Health Science Center $8.7 $1.6 $0.9

$13.1(9.7%) (1.7%) (0.9%) (14.6%) UT Health Science Center University of North Texas

at Houston Health Science Center at Fort Worth $11.4 $4.8

(12.6%) Texas Tech University (5.3%) UT Medical Branch Health Sciences Center

at Galveston $5.3 (5.9%) Texas Tech University $6.7

Health Sciences Center at El Paso (7.4%) $2.9

UT Southwestern Medical Center (3.2%) UT Austin Dell Medical School

$15.2 at Dallas

$3.1 UTRGV School of Medicine (3.5%) (16.8%) Baylor College of Medicine $1.2$15.4 (1.3%) (17.1%)


Institutional Enhancement is an appropriation from General Revenue Funds that began during the 2000–01 biennium. It is intended to enable each institution with smaller campuses to address its unique needs and diseconomies of scale. The total Institutional Enhancement appropriation for health related institutions during the 2018–19 biennium is $38.7 million in General Revenue Funds.

CONSTITUTIONAL FUNDS

Health related institutions are eligible for funding from the Available University Fund (AUF) and the Higher Education Fund (HEF). AUF distributions are used to provide support and maintenance at UT at Austin (including Dell Medical School) and Texas A&M University System Health Science Center. AUF distributions also can be used to pay interest and principal due on bonds backed by the Permanent University Fund (PUF) at the following institutions: UT Southwestern Medical Center, UT Medical Branch at Galveston, UT Health Science Center at Houston, UT Health Science Center at San Antonio, UT M.D. Anderson Cancer Center, UT Health Science Center at Tyler, and UT Rio Grande Valley School of Medicine. AUF distributions to eligible health related institutions by system offi ces in the 2018–19 biennium totaled $231.8 million in Other Funds, excluding amounts available to UT Rio Grande Valley School of Medicine, whose distributions are combined with the

general academic component of The University of Texas Rio Grande Valley.

HEF distributions to health related institutions for the 2018–19 biennium totaled $93.4 million in General Revenue Funds and were distributed to the University of North Texas Health Science Center, Texas Tech University Health Sciences Center, and Texas Tech University Health Sciences Center at El Paso. The amounts of HEF distributions to institutions are set in statute and limited to supporting certain capital purposes, including: acquiring land; constructing, equipping, and repairing buildings; and acquiring capital equipment, library books, and library materials. (See Appendix D – Constitutional and Research Funds.) Because these funds are not appropriated directly to institutions in the GAA, they do not appear in a strategy within an institution’s bill pattern.

CAPITAL FUNDS

Similarly to funding for general academic institutions, tuition revenue bonds are used to fund capital projects at health related institutions. The Legislature appropriated $285.4 million in General Revenue Funds for tuition revenue bond debt service for the 2018–19 biennium, along with $3.6 million in General Revenue Funds each fiscal year to Texas A&M University Health Science Center for debt service on its Round Rock facility. The latter appropriation began during the 2010–11 biennium.



EMPLOYEE BENEFITS

Like general academic institutions, health related institutions benefit from state appropriations related to employee benefits. Indirect appropriations include Higher Education Employees Group Insurance (HEGI), retirement contributions, and Social Security benefi ts. Direct appropriations include staff group insurance, workers’ compensation, and unemployment compensation strategies. (See the Higher Education Benefi ts section.) HEGI appropriations for the 10 freestanding health related institutions totaled $327.0 million in General Revenue Funds for the 2018–19 biennium. HEGI appropriations for UT at Austin Dell Medical School and UT Rio Grande Valley School of Medicine were included in the appropriations for the general academic institutions.

TEXAS PUBLIC EDUCATION GRANTS

Health related institutions, like the general academic institutions, are subject to the Texas Education Code, Section 56.033, which requires institutions to set aside a portion of tuition revenue to fund Texas Public Education Grants (TPEG). The estimated TPEG appropriation is $20.6 million for the 2018–19 biennium. This revenue is considered Other Educational and General Funds, which are General Revenue–Dedicated Funds.

TOBACCO SETTLEMENT

The Seventy-sixth Legislature, 1999, established: the Permanent Health Fund for health related institutions of higher education; the Permanent Fund for Minority Health Research and Education; the Permanent Fund for Higher Education Nursing, Allied Health, and Other Health-Related Programs; and 13 permanent endowments for individual institutions of higher education. Th e $100.9 million in estimated interest earnings from the endowments for the 2018–19 biennium, based on estimated interest earnings of 6.0 percent each year, were appropriated to the health related institutions.

PATIENT-CARE ACTIVITIES

Some institutions conduct patient-care activities, typically medical or dental services. For the 2018–19 biennium, institutions received an estimated $9.0 billion in patient income. Before the 2014–15 biennium, the hospital and clinic revenues earned through patient-care activities were appropriated to the institutions and considered Other Funds. Patient income no longer is appropriated to these institutions in the GAA, but they continue to receive this revenue.

BAYLOR COLLEGE OF MEDICINE Th e Sixty-first Legislature, Regular Session, 1969, authorized THECB to contract with Baylor College of Medicine, a private institution, for the education of undergraduate medical students who are Texas residents. The amount that Baylor College of Medicine receives in state appropriations trusteed to THECB is, by statute, based on the average annual state tax support per undergraduate medical student at The UT Medical Branch at Galveston and Th e UT Southwestern Medical Center. Th e Eighty-fi fth Legislature, 2017, appropriated Baylor College of Medicine $76.1 million in General Revenue Funds for undergraduate medical education and $15.4 million in General Revenue Funds from the health related institutions’ GME formula for the 2018–19 biennium.


FUNDING TWO-YEAR PUBLIC INSTITUTIONS

Texas’ public two-year, lower-level institutions include 50 community and junior college districts, six Texas State Technical College (TSTC) campuses, and three Lamar State Colleges. The Legislature appropriated these institutions $2,055.0 million in All Funds for the 2018–19 biennium. Fall 2017 enrollment at these institutions totaled 726,699.

Figure 18 shows the funding mechanisms for these institutions. Community colleges accounted for 97.3 percent of this enrollment total, and the Texas State Technical and Lamar State colleges composed the remaining portion.

PUBLIC COMMUNITY COLLEGES The Texas Education Code, Section 130.003(a), directs state appropriations to public community colleges to supplement local funds for “support, maintenance, operation, and improvement.” Section 130.003(c) directs that state funds must be used for paying instructional and administrative salaries and purchasing instructional supplies and materials.

Consistent with statute, community colleges are funded primarily through an outcomes-based model that includes three funding components: core operations, student success, and contact hours. Unlike general academic institution

FIGURE 18 TEXAS PUBLIC TWO-YEAR INSTITUTION FUNDING MECHANISMS, 2018–19 BIENNIUM

COMMUNITY COLLEGES TEXAS STATE TECHNICAL COLLEGES AND LAMAR STATE COLLEGES

Instruction and Administration

Tuition and fee revenues and local tax revenues augment state General Revenue Funds for these costs.

General Revenue Funds from the state are allocated by an outcomes-based model that includes three components:

core operations—each community college district receives $1.4 million for the biennium;

student success points (1) —10.6 percent of the remaining formula funding is allocated based on a three-year average of student success points metrics; and

contact-hour funding (2) —89.4 percent of the remaining formula funding is allocated based on contact hours.

Developmental Education Courses

Approximately 7.1 percent of the total contact hours funded by General Revenue Funds are developmental education courses.

Physical Plant

The state provides no funding for physical plant operations and maintenance. Local taxing districts are expected to provide support for physical plant needs.

Facilities

Local communities must provide facilities. Community colleges are not eligible to receive Higher Education Fund (HEF) allocations, Available University Fund allocations, or state tuition revenue bonds.

General Revenue Funds are based on formulas for two-year institutions allocated by either contact hours or returned value to the state. Tuition and fee revenues augment General Revenue Funds for these costs.

Of the total contact hours funded by General Revenue Funds, approximately 5.2 percent at the Lamar State Colleges and 5.9 percent at Texas State Technical Colleges (TSTC) are developmental education courses.

State funding is based on the formula for general academic institutions. The Lamar State Colleges will receive approximately $7.7 million, and TSTC will receive $13.2 million in General Revenue Funds for physical plant and utilities for the 2018–19 biennium.

The Lamar State Colleges receive approximately $4.2 million annually from HEF funds, and TSTC receives almost $5.8 million annually. HEF monies are used to acquire land, construct and equip buildings, provide major building repair or rehabilitation, and acquire capital equipment and library materials.



FIGURE 18 (CONTINUED) TEXAS PUBLIC TWO-YEAR INSTITUTION FUNDING MECHANISMS, 2018–19 BIENNIUM

COMMUNITY COLLEGES TEXAS STATE TECHNICAL COLLEGES AND LAMAR STATE COLLEGES

Employee Benefi ts

Community college employees are locally employed; however, The Lamar State Colleges and TSTC institutions both participate community colleges participate in the Employee Retirement System in ERS’ Group Benefits Program for health benefits and the (ERS) Group Benefits Program for health benefits and the Teacher TRS and ORP programs for retirement benefits. The state Retirement System (TRS) and Optional Retirement Program (ORP) makes General Revenue Funds contributions for the health and for retirement benefits. The state makes General Revenue Funds retirement benefits of employees whose salaries are paid with contributions for the health and retirement benefits. General Revenue Funds.

Tuition Fee Revenues

Tuition and fee revenues are considered institutional funds and Certain tuition revenue is appropriated by the state. For fiscal year are not appropriated by the state. Tuition rates vary by institution. 2015, resident students’ average tuition in addition to fees was For fiscal year 2017, the statewide tuition rates in addition to fees $138 per semester credit hour at the Lamar State Colleges and for in-district residents, out-of-district residents, and nonresidents $175 per semester credit hour at TSTC. averaged $142 per semester credit hour, but varied from $94 to $295 per semester credit hour.

Local Tax Revenue

Community colleges are projected to receive approximately $2.1 billion in tax income for fiscal year 2017. Local tax revenues are expected to provide support for physical plant needs and augment appropriations from General Revenue Funds for instruction and administration costs.

Nගඍඛ: (1) Student success points measure student completion of 11 metrics, calculated by the Texas Higher Education Coordinating Board. (2) A student contact hour measures an hour of scheduled academic and technical instruction given to students during a semester. Sඝකඋඍඛ: Legislative Budget Board; Texas Higher Education Coordinating Board; Texas Association of Community Colleges.

formulas, this formula does not include tuition and fee revenue as part of the method of fi nance.

No state funding is provided for physical plant operations and maintenance or for facilities, whose funding is supported by local tax eff ort.

FORMULA FUNDING

More than 98.3 percent of the direct General Revenue Funds appropriations to community colleges are generated through a funding formula. For the 2018–19 biennium, community colleges were appropriated $1,767.4 million in General Revenue Funds through formula funding. Beginning in the 2014–15 biennium, the Legislature implemented a new outcomes-based model for the Instruction and Administrative formula that includes the three funding components of core operations, student success, and contact hours. Each community college district receives $1.0 million in General Revenue Funds for core operations to help cover basic operating costs, regardless of the district’s geographic location or institutional size. Core operations funding replaced the small institution supplement these colleges formerly received. After core operations are funded, the remaining funds are allocated to the two remaining funding components: 10.0

percent of the remaining funds are distributed based on student success points, and 90.0 percent of the remaining funds are distributed based on the number of contact hours. The Legislature determines the amount of the appropriations.

The student success points formula allocates funding based on student completion of 11 metrics, shown in Figure 19. The Texas Higher Education Coordinating Board (THECB) calculates the number of success points achieved by each community college district per fiscal year. To account for fluctuations in annual points, the total number of points used in the formula is based on a three-year average of the points earned by each community college district. Th e appropriation is allocated to the colleges according to each district’s proportionate share of the total number of success points, resulting in a funding rate of $171.56 per success point for the 2018–19 biennium. The following formula calculates student success points funding for each district:

Student Success Points x Rate ($171.56)

The basis of the contact hour formula is THECB’s Report of Fundable Operating Expenses (RFOE), formally called the All Funds Expenditure Report. The report includes all expenditures for instruction and administration, excluding facilities costs, in



FIGURE 19 TEXAS COMMUNITY COLLEGES STUDENT SUCCESS POINTS FOR OUTCOMES-BASED MODEL OF INSTRUCTION AND ADMINISTRATION FUNDING, 2018–19 BIENNIUM

METRIC POINTS

Student completes developmental

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